Jan 20 <> Down 400 again…….

In my options portfolio, I track the available cash by subtracting the value of all the short puts (as if they were exercised – because they might be) from my cash. Today, that leaves me about 25% in cash. I don’t want to go any lower, so I will only be selling premium (calls) against the portfolio until cash is back closer to 50%. I never use margin, I’m not smart enough for that.

My account value is down about 5% since Jan 1, while the S&P is down 9.4%. If I was a mutual fund I would run an advertisement trying to convince you that is good performance. I’m not going to convince anyone that a 5% drawdown is good. I don’t like to see it, but it does not keep me up at night. I can’t run a portfolio that never drops in value, but I can run an option/stock portfolio with a cash flow of 0.001% a day. On a $100,000 account, that is $100 a day, $500 a week, $2000 a month in cash flow. Understand that the account value can increase or decrease. If the symbols in the account fall by 5%, the account may go down to $95,000, but it’s still able to throw off $95 a day. The cash flow helps to overcome market drops, over time.

Managing an option/stock portfolio for cash flow is not a short term system. You have to maintain a longer term, very strategic point of view. Right now, with option volatility so high, I could easily generate much more that 0.001% in daily cash flow by selling covered calls on everything in my portfolio. I have found that, over time, this clamps down your performance. Yes, it can raise more cash when the market is down, which seems like the prudent thing to do. But if you do it, then you are locked out as the market recovers. One after another, your positions become deep ITM covered calls which cannot be rolled for anything, so they get called away. Your account goes to cash at exactly the wrong time and you miss the recovery. A strategic portfolio is managed by a plan, not by the day-to-day gyrations of an emotional market. Stay focused and always Plan the Trade and Trade the Plan. I know it’s a cliche, but it does work.